EU measures may not be enough to support the market through the spring

Published 3 March 16

The market support measures currently in place in the EU are starting to show signs of strain in the face of continued high levels of milk production. While there was some growth in trade in 2015, it was not enough to stop a build-up of stocks, particularly for skim milk powders (SMP). With the spring approaching, current levels of market support may not be enough to stop prices falling even further.

For SMP, volumes offered into the current intervention scheme had already accounted for 41% of the 109,000 tonne ceiling by the middle of February. If the rate of entry continues, at the current average of 6,000 tonnes/week, intervention will be full by the end of April. Any product going into intervention after this time is likely to be subject to tender and will not necessarily achieve the intervention price of €1,698/tonne. To make matters worse, this will come at a time when a significant volume of SMP stocks will have reached their storage limit under PSA.

Product placed into PSA during 2015 had a storage limit of 7 months (210 days), and as SMP stocks accumulated quickly at the back end of the year, there is roughly 10,000 tonnes due to come out in the peak production months of April to June.

Butter is under slightly less pressure as market prices have remained above intervention levels. Butter stocks due to come out of PSA are relatively low, so will not add significant pressure to the market although the level of private stocks is unknown. Prices for butter held up reasonably well during 2015, but downward pressure has intensified since the beginning of this year, suggesting there is some need to move stocks, which could move prices closer to intervention levels.